Your credit score is subjected to a quick check when availing of a loan or an advance. Whether it is an individual borrower or a business seeking financing, the credit score holds critical importance. It is a 3-digit number assigned to every borrowing individual or entity based on their borrowing history and repayment behavior. This score is set by dedicated credit bureaus to whom all the lenders report their loan accounts. CIBIL is one such credit bureau, and the score given by them is known as the CIBIL score, which often gains weightage above other bureaus in case of individual borrowing. When you apply for an unsecured loan, like an instant personal loan, your CIBIL score greatly matters.

There are many reasons why lenders rely on this credit score to approve or reject a loan. They also use this credit score to determine the risk associated with a particular lender and the interest rate they would levy. Below are some reasons that make credit scores very important for an instant money loan.

Top Reasons Why Credit Score is Important for Availing a Personal Loan

1. It forms a part of personal loan eligibility criteria

When applying for an instant personal loan, you must meet a minimum credit score as a mandatory eligibility requirement specified by the lender. As personal loans are unsecured advances, credit score forms the base for determining the borrower’s creditworthiness. As per this, the overall chances of your loan approval hinge on fulfilling this minimum threshold credit score.

Ideally, it would be best if you held a high credit score for an instant personal loan. This score indicates good and reliable creditworthiness and instills in the lender confidence that the borrower would be able to manage the loan well. With some personal loan apps, such a minimum threshold may not be mandatory. However, in that case, the lender will also send a credit score inquiry before proceeding to process the application. It is thus always useful to check your credit score before applying for a loan.

2. It reflects the individual’s credit history

A credit score is a numeric value assigned to each individual based on their credit history compilation. This history is a record of their past credit behavior, which can include a host of factors, like the total amount of credit they availed as per their financial standing, the repayments they have made as per schedule, the full credit mix availed, pattern of financing, the credit utilization, and much more.

As these factors are crucial and determine the risk associated with a borrowing profile, a well-built credit history can mean significant weightage to the chances of fast approval of your instant personal loan. This history can form the basis of all your future credit availabilities.

3. Your loan interest rate is affected by your credit score

As already mentioned, your credit score defines the risk associated with your borrowing profile. And since the interest rate on a loan is a direct reflection of this risk, credit score can significantly influence the final interest rate the lender will levy.

For personal loans, if you have a high credit score, you hold the leverage to negotiate for a better interest rate. Along with the interest rate, you can arrange other favorable terms on the advance that would make managing the loan convenient. So, improve your credit score before applying for an instant money loan.

4. Lenders may decide the loan amount to lend as per credit score

Since credit score determines your borrowing capacity, the lender you have applied to may also base their loan amount approval on this score. In case you are not eligible for the loan amount you requested, the lender may send you a counteroffer for a suitable loan amount based on your credit score.

Conclusion

Thus, it is ideal that you check your loan eligibility before applying for your instant personal loan. You can do so with the help of a personal loan eligibility calculator available online.

With the right credit score, you may also expect dedicated instant personal loan offers to come your way. These offers can be customized to suit all your borrowing requirements, from loan amount to tenure to the interest rate. Thus, you should check your credit score before applying for the advance. If you hold a low score, you may take some necessary steps to improve your credit score.